Giving up a Green Card - LTPR - When Will I Be Free ?

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Topic Author
rjm_cali
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Giving up a Green Card - LTPR - When Will I Be Free ?

Post by rjm_cali »

I know the process to escape Uncle Sam includes the I707 USCIS form and filing IRS 8854 to cover the tax side. And a 1040 at some point for 2022. My question is how do I time these to be 100% sure I don't get caught in the 2023 FY.

My plan is to leave the US December 2022 and re-establish tax residency for a while in the UK ahead of a move to France late in 2022.

Anyone done this ?
TedSwippet
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Re: Giving up a Green Card - LTPR - When Will I Be Free ?

Post by TedSwippet »

rjm_cali wrote: Wed Oct 13, 2021 6:27 pm I know the process to escape Uncle Sam includes the I707 USCIS form and filing IRS 8854 to cover the tax side. And a 1040 at some point for 2022. My question is how do I time these to be 100% sure I don't get caught in the 2023 FY.
Your official termination date for tax purposes is now(*) the date on which you file form I-407. From form 8854 instructions:
If you were a U.S. long-term resident (LTR), you terminated your lawful permanent residency on the earliest of the following dates.
- The date you voluntarily abandoned your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U.S. consular or immigration officer.
...
Filing the I-407 used to be quick and straightforward. It went to your local US consulate, and the acknowledgement and receipt usually arrived within a week, perhaps two at the outside (they were almost insultingly efficient when I did this in 2008!). However, the USCIS revised the process, so that now these have to be mailed to an address in the US.

This could introduce a longer and unpredictable delay in the process. The question then becomes, is the I-407 "filed" on the date you mail it, or on the date that USCIS finally gets round to handling it? A general rule with these sorts of thing is "mailing equals filing", provided of course you can prove your mailing date if/when questioned. I don't recall seeing this in any official source and specifically to an I-407 though, so worth a bit of research to confirm if you think it will be a problem for you.

The other and perhaps safer option is to hand in the I-407 at the airport on your final departure from the US. That leaves no room for argument on date of filing. I don't know how reliable this option might be. Is there a 24 hour USCIS presence at every US international airport that you can confidently access as someone leaving the US, rather than arriving? Shrug. Again, worth some research if you plan to rely on this method.

I take it you are entirely familiar with the all of the tax traps associated with leaving the US, including the US's execrable 'exit tax'? Just checking.


(*) Between 2004 and 2008, an I-407 alone was not sufficient to terminate US tax residency, only US actual physical residency. It was entirely possible to find that your worldwide income was all fully US taxable yet without you having any right to enter or live in the US. Land of the free.
assyadh
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Re: Giving up a Green Card - LTPR - When Will I Be Free ?

Post by assyadh »

This is a really good question and as always it's hard to find an answer.

As Ted mentioned, the 8854 seems to mention the date of notifying. To be on the safe side, I wouldn't do it on the 30th of December to avoid being sucked into a new tax year.

Looking forward to other folks input.
Topic Author
rjm_cali
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Re: Giving up a Green Card - LTPR - When Will I Be Free ?

Post by rjm_cali »

TedSwippet wrote: Thu Oct 14, 2021 2:24 am

The question then becomes, is the I-407 "filed" on the date you mail it, or on the date that USCIS finally gets round to handling it? A general rule with these sorts of thing is "mailing equals filing", provided of course you can prove your mailing date if/when questioned.

The other and perhaps safer option is to hand in the I-407 at the airport on your final departure from the US. That leaves no room for argument on date of filing. I don't know how reliable this option might be. Is there a 24 hour USCIS presence at every US international airport that you can confidently access as someone leaving the US, rather than arriving? Shrug. Again, worth some research if you plan to rely on this method.

I take it you are entirely familiar with the all of the tax traps associated with leaving the US, including the US's execrable 'exit tax'? Just checking.
I'll be taking some legal/financial advice on this. Might even ring the IRS . Well aware of the "covered expat" farewell gift but I'll be resetting my cost base before I leave anyway to fine tune taxes. And yes let's not talk about estate taxes. Key thing for me is being somewhat OCD about this is getting confirmation *when* I meet the IRS criteria to be out of country. Call me nervous but I'm concerned that the immigration process is not the same as the IRS process in terms of dates. I'm due a large tax free lump sum pension payment in the UK hence the move via the UK. I do not want Uncle Sam to get a slice of that at income tax rates...

Not that confident about handing in the I-407 at the airport over the Christmas break either :-) I so guess I'll be on hold to the USCIS too at some point.

As ever thanks for the comments Ted.
TedSwippet
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Re: Giving up a Green Card - LTPR - When Will I Be Free ?

Post by TedSwippet »

rjm_cali wrote: Thu Oct 14, 2021 9:56 am I'm due a large tax free lump sum pension payment in the UK hence the move via the UK. I do not want Uncle Sam to get a slice of that at income tax rates ...
Indeed. In which case, making sure you are completely divorced from the US tax system at that point is an entirely sensible move. Otherwise ... grey area. Take your pick from this selection of tax experts:

For the "it's not taxable" camp: https://www.castroandco.com/blog/2018/f ... ributions/
Under the U.S.-U.K. Income Tax Treaty, however, there is an opportunity to lawfully avoid U.S. taxation on the 25% Pension Commencement Lump Sum (PCLS) portion under Article 17, Paragraph 1(b) of the U.S.-U.K. Income Tax Treaty. Article 17(1)(b) is referred to as the "reciprocal pension exemption." It basically holds that, if a particular type of pension distribution would be exempt from tax by Country A, then Country B is legally bound to recognize that exemption.

Thus, for example, the UK exempts the first 25% lump withdrawal, so the U.S. is legally obligated to recognize that exemption. Likewise, distributions from a U.S. Roth Individual Retirement Account is exempt from tax in the U.S., so the U.K. is legally obligated to recognize the exemption.

Moreover, Article 1, Paragraph 5(a), specifically exempts the Article 17(1)(b) reciprocal pension exemption treaty benefit from the saving clause, so even U.S. citizens can claim this benefit.

... Anyone who says otherwise is a dangerous fool you should avoid unless you want to voluntarily pay more tax to the IRS.
For the "it is taxable" camp: https://www.fjvtax.com/blog/2019/07/23/ ... -citizens/
In summary, a UK 25% lump-sum pension distribution is fully taxable to a US citizen and resident and the US tax authorities have specifically stated that the Treaty language agrees. Any other position on this issue contradicts the IRS’s position and, quite frankly, has no basis either in US tax law or the Treaty itself. One taking an alternative position on this issue should be aware that it will likely require a substantive audit defense.
And resolutely on the fence: https://www.ey.com/en_uk/ey-frank-hirth ... -in-the-us
After saving over the course of a career, individuals will want to ensure they make the best use of their funds in retirement planning. To do this effectively, they will need to determine the taxable amount of each distribution, the sourcing and character of the distribution, and any offsetting tax credits. They also need to know how to report a UK pension commencement tax-free lump sum and whether amounts tax-exempt in the UK will also be free of tax in the US.
All highly unsatisfactory, isn't it?

For what it's worth, a dated I-407 receipt is incontrovertible proof that you're out for tax purpose. Post-2008 there really should be no argument about that. The challenge could be trying to obtain it within a tight-ish timescale.
asteroidnix
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Re: Giving up a Green Card - LTPR - When Will I Be Free ?

Post by asteroidnix »

I just went through this process myself. I was however not a LTPR (held GC < 8 years), so no 8854 filing for me (hooray!). I'm not even considered an expatriate as a result - no difference to letting an H1B expire.

I had the same question for the residency termination date. I consulted an immigration attorney. Amusingly, they had no experience of someone filing an I-407 before... :) Annoyingly, they could not find a conclusive answer. They said however that receipt date (i.e. when it reaches the Eastern Forms Centre via Fedex) + 1 day is probably a reasonable safe bet. One option they suggested is to file a Freedom of Information in 90 days for my Alien File (thanks for the terminology Uncle Sam) if I wanted to be more accurately determine the termination date. They stressed the importance of me taking a scan of the dated I-407 for proof that I did renounce.
Topic Author
rjm_cali
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Re: Giving up a Green Card - LTPR - When Will I Be Free ?

Post by rjm_cali »

asteroidnix wrote: Fri Oct 15, 2021 9:41 am I just went through this process myself. I was however not a LTPR (held GC < 8 years), so no 8854 filing for me (hooray!).

They said however that receipt date (i.e. when it reaches the Eastern Forms Centre via Fedex) + 1 day is probably a reasonable safe bet. One option they suggested is to file a Freedom of Information in 90 days for my Alien File (thanks for the terminology Uncle Sam) if I wanted to be more accurately determine the termination date. They stressed the importance of me taking a scan of the dated I-407 for proof that I did renounce.
It would be nice if Uncle Sam and specifically the people that really matter, the IRS could provide a definitive answer. I'm not really that fussed about when the USCIS think I've left - it's the IRS that worry me. I am LTPR but hopefully not a covered expat. That said I'll be resetting the cost base on all assets in the US anyway as it's cheaper here than France where the flat rate on CG is effectively 30%.
assyadh
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Re: Giving up a Green Card - LTPR - When Will I Be Free ?

Post by assyadh »

rjm_cali wrote: Sun Oct 17, 2021 10:54 am
asteroidnix wrote: Fri Oct 15, 2021 9:41 am I just went through this process myself. I was however not a LTPR (held GC < 8 years), so no 8854 filing for me (hooray!).

They said however that receipt date (i.e. when it reaches the Eastern Forms Centre via Fedex) + 1 day is probably a reasonable safe bet. One option they suggested is to file a Freedom of Information in 90 days for my Alien File (thanks for the terminology Uncle Sam) if I wanted to be more accurately determine the termination date. They stressed the importance of me taking a scan of the dated I-407 for proof that I did renounce.
It would be nice if Uncle Sam and specifically the people that really matter, the IRS could provide a definitive answer. I'm not really that fussed about when the USCIS think I've left - it's the IRS that worry me. I am LTPR but hopefully not a covered expat. That said I'll be resetting the cost base on all assets in the US anyway as it's cheaper here than France where the flat rate on CG is effectively 30%.
Why not do a one year residence in Belgium or Luxembourg or Switzerland to reset the cost base?

You've earned it. You're not a covered expatriate so you're not violating any law.
Topic Author
rjm_cali
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Re: Giving up a Green Card - LTPR - When Will I Be Free ?

Post by rjm_cali »

assyadh wrote: Sun Oct 17, 2021 12:31 pm
Why not do a one year residence in Belgium or Luxembourg or Switzerland to reset the cost base?

You've earned it. You're not a covered expatriate so you're not violating any law.
We're already going to be spending the best part of 2023 in the UK ahead of settling in France. Logic in doing it here in the US is that I'll be in a position to declare very little income in the US for FY 2021 so my CG which are all LT should be relatively low rate wise. If you can see any fault in my logic do tell. Not familiar with the CG rates in Belgium or Switzerland - both places my wife has lived oddly enough.
assyadh
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Re: Giving up a Green Card - LTPR - When Will I Be Free ?

Post by assyadh »

rjm_cali wrote: Sun Oct 17, 2021 3:33 pm
assyadh wrote: Sun Oct 17, 2021 12:31 pm
Why not do a one year residence in Belgium or Luxembourg or Switzerland to reset the cost base?

You've earned it. You're not a covered expatriate so you're not violating any law.
We're already going to be spending the best part of 2023 in the UK ahead of settling in France. Logic in doing it here in the US is that I'll be in a position to declare very little income in the US for FY 2021 so my CG which are all LT should be relatively low rate wise. If you can see any fault in my logic do tell. Not familiar with the CG rates in Belgium or Switzerland - both places my wife has lived oddly enough.
CG are not taxes in these places (apart from a really small transaction tax in BE).

But looks like you have a good grasp. If you're income will be low then maybe it makes sense to rince it all in the US. If we're talking 2M$ of capital gains then it's probably worth it to stay in Luxembourg for a year..
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